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Story by Reuters

International investors slashed their exposure to U.S. equities in May to its lowest in over seven years, while maintaining the euro zone as their leading stock market destination, a closely watched survey said on Tuesday.

Driven by worries about a string of disappointing U.S. economic indicators and the strength of the dollar, global investors cut their allocation to U.S. stocks to 19 percent underweight from 12 percent underweight the month before.

That’s according to the monthly Bank of America Merrill Lynch survey of 169 fund managers who run $479 billion of funds, which was conducted May 8-15, and comes just as the S&P 500 (.SPX) hits record highs.

“Relative positioning of the U.S. vs the rest of the world is now at the most extreme since November 2007,” BAML said in its report. “Contrarians would go long U.S. equities relative to the broader market.”

While 70 percent of respondents expect global growth to strengthen and the rise in oil has pushed inflation expectations to a 10-month high, expectations for the first U.S. interest rate increase have been pushed back.

More than half of those polled now expect the first Federal Reserve rate hike since June 2006 to come in the fourth quarter of this year or later.

Meanwhile, a net 49 percent of those surveyed were overweight euro zone stocks in May, up from 45 percent in April. Only one in 10 managers polled was underweight euro zone stocks.

“Positioning in euro zone equities remains crowded,” BAML said in its report.

Overall, investors reduced their global equity allocation to a net 47 percent overweight, the lowest in six months. Global bond allocations were cut to a net 60 percent underweight, the lowest in nine months, as the global bond rout of April and May took hold.

While both equities and bonds may be richly valued, investors think the biggest risk of volatility this year is in bonds. Only 5 percent of those surveyed said they expected bond yields to fall this year.

With crude surging some 50 percent from a January low, only a net 13 percent of investors thought oil was undervalued, the lowest percentage in eight months.

Demand for safe-haven cash slipped to a still “elevated” 4.5 percent in May from 4.6 percent in April. Cash levels above 4.5 percent are a contrarian “buy” signal for equities, and below 3.5 percent triggers a “sell” signal, BAML said.